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Newsletters
STRS Ohio News for Active Members
Michael Nehf Named STRS Ohio’s Ninth Executive Director
In announcing the Retirement Board’s decision, Jeffrey Chapman, board chair, noted, “Mike brings a wealth of public pension fund experience to STRS Ohio. He is knowledgeable about the challenges facing public retirement systems and he is committed to applying that knowledge to address the issues that are of most importance to our members — namely secure health care and continued pension solvency. His past experience working with public plans, including a teachers’ fund, and his demonstrated commitment to defined benefit plans will serve us well. “As we reflected on what we wanted in our next executive director, my board colleagues and I certainly wanted someone who would continue to maintain the trust and confidence of our members and the strengthened dialogue we have with the members of Ohio’s General Assembly. Mike is that individual. He’ll be a ‘hands on’ leader who knows how to build consensus on tough issues, whether he’s working with members, legislators, the board or our STRS Ohio associates.” As Nehf begins his new role at STRS Ohio, he has four objectives in mind for the near term. “I want to develop initiatives to improve the funding of the health care program so it remains available to retirees. We must also continue to generate excellent investment returns due to the significant impact they have on our pension funding. I also want to implement operating improvements and efficiencies to continue the positive trends in member satisfaction and cost control. Finally, I want to enhance our relationships at the state and federal levels with key policymakers that affect public pension and health care issues. “In the coming months, one of the things I look most forward to is meeting and talking with our members. We are faced with many challenges. But there will be no surprises; I believe in communication — early and often. “I see this as an exciting opportunity to lead one of the premier retirement systems in the country and to continue to instill confidence and credibility to the system. Even the longest journey begins with a first step. Together with our Retirement Board and associates, I embrace that first step and the many more to follow. I’m looking forward to leading STRS Ohio to becoming the best-managed retirement system in the country.” Nehf is a certified public accountant (CPA). He received his bachelor’s degree in accounting from Western Illinois University and his master of management degree from the J. L. Kellogg Graduate School of Management at Northwestern University. He and his wife, Kathy, have grown children who reside in the Chicago, Rochester, Minn., and Atlanta areas. His wife is a Reading Recovery teacher.
House Bill 315 Discussions Continue STRS Ohio members are encouraged to share their position on this bill with candidates for the Ohio House and Senate. By talking to these individuals in the coming months, you help keep this topic at the forefront and pave the way for productive conversations when these legislators take office in January. STRS Ohio members can keep track of H.B. 315 and other bills and events at the Ohio Statehouse and in Washington, D.C., through the monthly Legislative News posted on STRS Ohio’s Web site. This newsletter, which is published by STRS Ohio’s Governmental Relations staff, can be accessed under “Quick Links” on the right-hand side of the home page. If you prefer to receive a print copy in the mail, contact the Governmental Relations office at (614) 277-2913.
Investments and Financial News Update The returns for fiscal year 2008 are in sharp contrast to the results posted in the previous three fiscal years. Returns for fiscal years 2005, 2006 and 2007 were 12.3%, 13.7% and 20.7%, respectively. As this illustrates, investment returns can fluctuate significantly from year to year, depending in large part on market conditions. As a result, public retirement systems across the country, including STRS Ohio, use an approved accounting and actuarial technique called “smoothing” to spread this volatility over several years when recording investment returns as part of the annual actuarial valuation process. STRS Ohio uses a four-year smoothing period. With four-year smoothing, each year’s gains and losses are recognized evenly over the current and subsequent three years: 25% per year. This calculation is done every year, on a rolling-forward basis. Consequently, when STRS Ohio’s actuary reports the funding period for STRS Ohio as of July 1, 2008, later this year, the funding period will reflect only a portion of this year’s loss, as well as gains that were deferred from the previous three years. However, this also means the negative return recorded in fiscal year 2008 will be reflected in actuarial valuations through July 1, 2011. As STRS Ohio begins fiscal year 2009, Investment Department staff members are predicting better returns, as detailed in the Annual Investment Plan they presented to the State Teachers Retirement Board at its June 2008 meeting. This plan outlines staff’s investment strategy for each asset class — liquidity reserves, fixed income, domestic and international equities, real estate and alternative investments. STRS Ohio staff expects the U.S. economy to rebound to more normal levels in the second half of fiscal year 2009 (January–June 2009), and core inflation (excluding food and energy) to remain moderate. Overall, staff projects the total investment fund return to at least match the system’s long-term actuarial assumed rate of return of 8% in fiscal year 2009. Retirement Board Adopts Budgets for Fiscal Year 2009 In building the budget each year, staff looks at both needed increases, as well as opportunities for cost savings. Like any service organization, the majority of STRS Ohio’s operating budget goes toward expenditures for salaries and benefits. To ensure that STRS Ohio can attract and retain qualified investment professionals, it provides a cash compensation package to these associates that includes a base salary plus a Performance-Based Incentive (PBI) component. The PBI enables eligible Investment associates to receive an additional percentage of their base salary, depending on both total investment fund performance and their individual goals. STRS Ohio associates internally manage a significant portion of the system’s assets — about 80% — versus using outside money managers. Third-party studies have shown that this practice is extremely cost-effective for STRS Ohio. Just as an example, internal management saved STRS Ohio $88.4 million in fees in calendar year 2006 alone. The goal of the Retirement Board is to maintain the total compensation (base salary plus PBI) for eligible Investment associates at the 25th percentile of private market levels. Thus, the fiscal year 2009 budget includes a 4% merit and promotional increase for eligible associates, plus an additional adjustment to Investment associate compensation to maintain the 25th percentile level. Merit and promotional increases are awarded based on each individual associate’s performance. STRS Ohio associates do not receive step increases nor annual cost-of-living increases. Other factors contributing to the fiscal year 2009 budget include: higher postage and fuel costs; additional planned field counseling for active members; new software purchases; due diligence travel; costs related to conducting two board elections; building maintenance; and increases in existing contracts for such items as copier service and maintenance and professional service contracts. Five new associate positions are included in the budget, but due to other personnel changes during fiscal year 2008, the total staff size has decreased to 618 full- and part-time associates from 637. The budget also reflects significant reductions in such areas as actuary fees, contract services for the Information Technology Services Department, custodial banking fees, disaster recovery, consulting services and outside printing. STRS Ohio members who are interested in more detailed information about the budget can view the amounts allocated to each line item and monthly expenditures on the system’s Web site. Just click on “Retirement Board” on the left-hand side of the home page; administrative expenses can be viewed under “Related Links” on the board page.
Important Information for Beneficiaries Upon the Death of an STRS Ohio Member or Benefit Recipient
Spring Reports Show High Marks From Members and a No. 1 Ranking Mirroring last year’s results, this year’s telephone surveys showed that nine out of 10 active and retired STRS Ohio members continue to have favorable impressions of STRS Ohio, as shown in the accompanying chart. A similarly high number of members are satisfied with the services they receive from STRS Ohio.
In addition to assessing overall impressions about the system and service levels, STRS Ohio’s annual telephone surveys measure members’ impressions and attitudes about their pension benefits, health care coverage, member communications and the work of the Retirement Board. This year’s surveys were conducted in February and March 2008. The 608 participants (304 active members and 304 retired members) were randomly selected. All survey work and the compilation of the results was done by the Columbus-based research firm, Saperstein Associates. The research showed that the positive impressions of STRS Ohio noted above extend to the Retirement Board and to pension benefits and are caused primarily by three factors: (1) excellent service to members, (2) good investment returns and (3) improved communications. However, as indicated in past surveys, health care continues to be an issue of concern among retirees and, to a lesser extent, among active members. Retirees are primarily concerned about cost, while active members want more information about health care. And, both active and retired members continue to show majority support for House Bill 315, which would create an ongoing, dedicated revenue stream for the STRS Ohio Health Care Program.
When asked what the Retirement Board’s top three priorities should be, STRS Ohio members reiterated that the board should continue to focus its attention on: (1) preserving health care coverage, (2) managing investments and expenses responsibly; and (3) maintaining or improving pension benefits. The data provided by these telephone surveys supplement information gathered year-round through surveys distributed at speaking engagements and member education programs, as well as from members’ opinions voiced through letters, phone calls, e-mails and meetings. Continual review of survey data and anecdotal information ensures the Retirement Board and STRS Ohio associates are addressing the issues of relevance and concern to the membership.
Beyond the Classroom Workshop
Retirement Planning Seminar
Retiring With Confidence
You can also access this information on the STRS Ohio Web site. To get a password to see your personal account information, call STRS Ohio toll-free at 1-888-227-7877; you can also request a password through the Web site.
Another factor considered in calculating STRS Ohio’s premiums is the claims experience for each of the health care plans’ risk pools (e.g., non-Medicare benefit recipients enrolled in Medical Mutual and non-Medicare spouses enrolled in Medical Mutual). Unfortunately, it is difficult to moderate premium increases significantly without making major changes in health care coverage. For example, to reduce a 30-year benefit recipient’s premiums by just $1 per month requires more than $5 million in annual health care plan cost reductions. The 2009 premiums also reflect the board’s continuation of its contribution strategy of providing a premium subsidy based on years of service for eligible benefit recipients, and requiring spouses and dependents to pay 100% of applicable rates. A representative sampling of the premiums for 2009 are shown in the charts below. Complete lists of premiums for all health care plans are available on STRS Ohio’s Web site or by calling STRS Ohio’s Member Services Center toll-free at 1-888-227-7877.
The Retirement Board and staff will be looking at potential changes to the health care program to manage cost trend rates as part of a health care strategic planning process that begins this fall. The development and successful implementation of a strategic plan helps ensure that the added contributions that would be generated by the passage of House Bill 315 will provide the necessary funding to preserve the health care program for years to come. (See accompanying story above.) One of the factors that will influence these discussions will be the project that STRS Ohio has entered into with three other Ohio retirement systems to collaborate as a purchasing group for administrative services for health care plans. Collectively, STRS Ohio, the Ohio Public Employees Retirement System, the School Employees Retirement System and the Highway Patrol Retirement System have more than 375,000 health care enrollees resulting in more than $1 billion in medical expenditures for 2007 alone. In STRS Ohio’s case, Aetna and Medical Mutual are currently serving as the administrators for the self-insured portion of the STRS Ohio Health Care Program. Economies of scale and vendor competition on price and service will help manage increasing cost trends. Board Addresses Health Care Program for Survivors and Beneficiaries Beginning on Jan. 1, 2004, subsidies for survivors and beneficiaries toward their health care plan premium, based on the deceased member’s years of service at the date of death, were limited to five years. At the end of this five-year period, these individuals are still eligible to participate in the health care program, but their premium increases to the applicable non-subsidized benefit recipient rate. Survivors and beneficiaries whose benefits began before Jan. 1, 2004, were also given the five-year period, which ends on Jan. 1, 2009. About 6,700 of the current 8,000 survivors and beneficiaries will be impacted by this change next year. Recognizing that premiums will increase significantly for some of these survivors and beneficiaries on Jan. 1, 2009, the Retirement Board approved the expansion of the Health Care Assistance Plan (HCAP) to create a safety net for the low-income enrollees in this group. Beginning Jan. 1, 2009, those eligible for the program will include all beneficiaries of retired teachers with 25 years or more of service, and all survivors of disabled and active teachers. Eligibility for the program is based on an annual family income limit of $23,800 and a household liquid asset limit of $23,800. (A home is not considered a liquid asset.) The HCAP offers a $0 monthly premium for the eligible survivor or beneficiary. Family members of qualifying enrollees pay the full cost of their health care coverage. The board also approved the continuation of the current premium program with a five-year subsidy period for survivors and beneficiaries. Recognizing the importance of not adding additional costs to the health care program, the board noted that it will assure the cost-neutrality of expanding HCAP to additional participants as part of the health care strategic planning process that begins this fall.
You can also access the Personal Account Information section from the home page. This special section (password registration required) allows you to change your mailing address or contact information; review health care plan options available to you in retirement; view your Annual Statement of Account; and receive an estimate of your service retirement benefit using your personal account information. You can request a password online right from the home page. (For security purposes, password confirmation is mailed to your home address.) If you haven’t visited our Web site recently, we invite you to pay us a visit. There’s no place like home!
On Sept. 1, board officers will also change. During its June meeting, the board members elected Mark Meuser as their vice chair for the coming year. According to Board Policies, Mary Ann Quilter Cervantes, who is currently serving as vice chair, automatically moves into the position of chair. |
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Before joining ERSGA in January 2005, Nehf was with the Public School Teachers’ Pension & Retirement Fund of Chicago for 10 years, serving as its executive director from 1997 through 2004. He also served as an elected school board member for eight years in Illinois. Other past positions include serving as comptroller for the Municipal Employees’ Annuity & Benefit Fund of Chicago, and accounting and finance positions primarily in the life and health insurance sectors.![impressions graph](javascript:auxilaryWindow("../../images/IMP_STRSOH_08-large.gif","left"))
![retirement by age chart](javascript:auxilaryWindow("../../images/retirebyage2-large.gif","left"))
Tim Myers will take his seat on the State Teachers Retirement Board on Sept. 1, 2008, having won this year’s election for the contributing member seat currently held by John Lazares. Myers provides computer training for middle school students in the Elida Local Schools, where he has worked for 28 years. He was also a special education teacher for one year with the Columbus Grove Local Schools. His term on the Retirement Board extends through Aug. 31, 2012.
